Poor superannuation choices could cost Australians $200,000: Stockspot

Poor superannuation choices could cost Australians $200,000: Stockspot

Choosing the wrong superannuation fund could set an average Australian back about $200,000 by retirement, new research from Stockspot has found.

High super fees and poor fund performance are largely to blame, according to the online investment adviser.

Stockspot compared 600 multi-asset investment options across Australia’s largest 100 funds. The performance of the funds after fees were compared with other super options of similar risk over five years.

Dubbed “fat cat funds”, the 40 worst performing super funds manage 5.5 $billion and yet wipe out $117 million in fees from Australian retirement savings every year, according to the research.

On average, top performing funds, or “fit cat funds”, charge 0.97 per cent in fees a year, while a typical fat cat fund charges 2.13 per cent.

Which super funds showed the worst performance?

AMP topped the list as the worst fat cat fund this year, followed by One Path and Macquarie.

It’s not the first time AMP has been named a fat cat fund, with the wealth manager appearing on the list eight years in a row.

About 1.5 million Australians invest their retirement savings with AMP, the fourth largest of the 150 funds that provide member data, according to figures from Super Guide.

AMP and OnePath account for 12 and 11 of the fat cat funds respectively, more than half of the worst performers list, while Macquarie had five.

AMP is also the first fat cat fund to manage a super fund with a negative annual return of -2.2 per cent over five years, the worst return recorded across the funds analysed by Stockspot.

The super funds with the best five-year performances

Industry super fund UniSuper took out the top gong with seven fit cat super funds under its belt in 2020.

Five of the top-performing super funds were controlled by ASX-listed IOOF, while the country’s largest super fund, AustralianSuper, had four under its name.

All the top three fit cat funds charge less than 1 per cent in fees per year.

Fit cat funds outperformed fat cat funds by 22 per cent over five years.

The importance of fees

The report pointed out that, while it’s not possible to control how markets will perform, members have the power to pay less in super fees and that Australians are overpaying when it comes to fees.

“Our research over the last eight years shows funds that charge less than 1 per cent per annum perform better in the long-term,” the report noted.

“There is a clear correlation between high fees and long-term underperformance in superannuation.”

Chris Brycki, chief executive officer of Stockspot, said it was vital to pay attention to the amount of fees charged by a super fund.

“One of the golden rules of superannuation is the less you pay, the more you get. Always pay less than 1 per cent per annum in fees so your super isn’t eroded by high fees,” he said.

“Unfortunately, there are almost twice as many high-fee funds (more than 1 per cent per annum in fees) than low fee funds (less than 1 per cent per annum in fees).”

Mr Brycki said most Australians were generally reluctant to take action, even if they knew it could help them avoid potentially higher than average fees over their working life.

“Superannuation is the biggest investment most Australians have, yet most people have no idea how much they stand to lose if they’re in a fat cat fund,” he said.

“Sadly in the eight years of naming the worst performing fat cat funds, few people have moved out of these funds.”

Many Australians tend to put superannuation on the backburner until it may be too late, Mr Brycki added.

“Retirement may seem a while away, but when you get there and realise you could have been $200,000 richer, it won’t be a good feeling,” he said.

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Learn more about superannuation

How do you pay superannuation?

Superannuation is paid by employers to employees. Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

Currently, the superannuation rate is currently 9.5 per cent of an employee’s ordinary time earnings. This is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.

How do you find superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How much is superannuation?

Superannuation is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

What should I know before getting an SMSF?

Four questions to ask yourself before taking out an SMSF include:

  1. Do I have enough superannuation to justify the higher set-up and running costs?
  2. Am I able to handle complicated compliance obligations?
  3. Am I willing to spend lots of time researching investment options?
  4. Do I have the skill to make big financial decisions?

It’s also worth remembering that ordinary superannuation funds usually offer discounted life insurance and disability insurance. These discounts would no longer be available if you decided to manage your own super.

How can I keep track of my superannuation?

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.

How do you calculate superannuation?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

What happens to my superannuation when I change jobs?

You can keep your superannuation fund for as long as you like, so nothing happens when you change jobs. Please note that some superannuation funds have special features for people who work with certain employers, so these features may no longer be available if you change jobs.

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

How do I combine several superannuation accounts into one account?

The process used to consolidate several superannuation accounts into one is the same process used to change superannuation funds. This can be done through your MyGov account or by filling out a rollover form and sending it to your chosen fund.